Shorting Bitcoin is a concept you need to be familiar with, especially if you are new to the crypto space. There is more to the crypto space then merely the opportunities to buy, sell and trade digital currencies. As a crypto enthusiast, if you dive in and start exploring you will find more outstanding options such as shorting BTC. สล็อตเว็บตรง
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While these opportunities do offer some chances to get benefits, it is important to remember that the benefits are never guaranteed. However, the more you know about various concepts and opportunities, the higher your chances will be to benefit from crypto with minimum inconveniences.
Therefore, if you want to know what is shorting BTC and ‘can I short Bitcoin or not?’ then you need to know the information mentioned below.
Understanding What is Shorting Bitcoin
Shorting is also called short selling and it is an investment style. This is usually for the people who want to invest in Bitcoin but are not so optimistic about an increase in the asset’s price and value in the long-run.
If the investors think the crypto king will fall in the future then short selling is a good option for them to choose.
Bitcoin generally does experience a lot of fluctuations in its price, even if it is in a bull run. The volatility associated with its price offers a lot of possibilities for people who want to long or short the asset.
To put it simply, short selling allows the investors to make money if the price of the flagship cryptocurrency drops. A simple way to short sell BTC is to opt for an exchange that supports shorting.
How it All Works?
Shorting Bitcoin is basically a process where the traders are allowed to borrow an asset or a financial instrument. In this case, the borrowed asset is Bitcoin. Once it is borrowed, the traders can sell it at its current price.
If the traders opt for an exchange that supports perpetual contracts then paying back the person can become easier at a later date and difference. However, in order for it to be easier for you to payback the person, the trade they make needs to be profitable.
In other words, the price of the asset, Bitcoin in this case, needs to drop after you short it.
Example of Short Selling BTC
Let’s consider an example to get a better understanding of what short selling is all about.
Let us suppose that you are a trader. The price of the flagship cryptocurrency is $50,000 at the moment and you want to short 2 BTC.
This would mean that the 2 BTC you borrow have a collective value of $100,000.
Now, let us consider that the price of the asset drops to $49,000 and you close your trading position. This would be doable if you re-buy the 2 BTC you borrowed at the price it has dropped to, which is $49,000. This would mean that the collective value of the 2 BTC will now be $98,000.
According to this, your profit for shorting Bitcoin will be calculated as such:
$100,000 – $98,000 = $2,000
Risks of Short Selling
If you want to know ‘can I short Bitcoin?’ then you need to know the details mentioned above and the risks that come with it.
Generally when you invest in Bitcoin and its price drops, you will only lose the amount that you invested initially. However, while shorting Bitcoin, the financial losses you may experience can go beyond your initial investment.
This depends on the leverage ratio you opt for. The higher the leverage, the higher the risk you are likely to experience.
How to Manage the Risks?
Learning about shorting Bitcoin also involves learning about the ways you can manage your risks in case the trade goes south.
As mentioned above, the higher the leverage you opt for the higher the risk you will experience. This means that the financial losses you sustain may very well go beyond what you can afford.
Therefore, one of the best ways to manage your risks is to use the stop-loss function. This is used to set a cut-off point in case your trade does not go well. This ensures that the financial losses you get are not beyond what you can afford.
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Three Basic Steps to Short Sell Bitcoin
For anyone interested to know ‘can I short Bitcoin?’ the following information is essential. The three simple and easy steps you can follow to short sell BTC are as follows:
- Sign up with a suitable exchange and deposit Bitcoin
- Look for an opportunity to short sell the crypto king
- Execute the order
If you are new to the crypto space then you should know that it offers opportunities that go beyond buying and trading crypto. It also includes shorting Bitcoin, the details of which are mentioned below.